Cash will always have a place among consumers — but its use is dwindling. Only 26 percent of all consumer payments are made in the U.S. with cash — and consumers are even starting to ditch plastic cards.
For financial institutions (FIs) and enterprises that seek to pivot to meet the growing demand for digital payments, observing and reacting to shifts in how different generations prefer to pay will be critical during the pandemic and beyond, according to Royal Cole, executive vice president, FI payment solutions at FIS.
Beyond the wholesale shift to digital payments, Cole told PYMNTS in a recent interview, there are pockets of growth that are seeing more digital acceleration than others as lockdowns linger and businesses reopen on a staggered basis.
He noted that ordering grocery items online and having them delivered is a practice quickly gaining traction. Of course, large retailers, too, are continuing to invest in accelerating their investments in their digital experiences.
Cole said there continues to exist the “COVID-related phenomenon that’s happened to small businesses all over the country. They have changed their business models — the neighborhood bars and restaurants that have relied on on-premise businesses and have had to adopt some form of takeout or curbside service in order to stay relevant and stay in business.”
Many of these smaller firms, he said, did not have individual, digitized payment experiences woven into their overall operating infrastructures before the pandemic hit.
The great digital shift has also had a ripple effect on the classic B2B model, particularly on supply chains, said Cole.
Companies have had to adjust their inventory management practices, and in many cases amid lockdowns and shutdowns have had to look for alternative vendors.
Regardless of whether payments are B2B or C2B, he said the trend has been clear: “You want to be able to choose between which payment instruments you are going to be using at the time of your choosing. As the supplier or seller of goods and services, you’re always thinking about the cost of acceptance and the mix of payments that you are taking.”
Cole said that the shift toward digital payments is also gaining a tailwind from demographic preferences — particularly among younger consumers.
As he told PYMNTS, “Payments behavior is generational.”
For members of the millennial or Generation Z cohorts who are comfortable in the app world, payment preferences boil down to choice and control. Payments can have a social component, he said, where divvying up a dinner bill can be done through Venmo or Zelle or other peer-to-peer (P2P) options.
These payment apps, said Cole, become “part of the social fabric of how these consumers interact with their friends and their communities.” With the social aspect in place, he said “inclusion” becomes a part of commerce, as younger consumers observe the ease and speed of making payments through mobile means and embrace those payment options themselves.
Security Is Top Of Mind
The rising tide of card-not-present transactions and digital commerce also brings security Issues to top of mind, noted Cole. No matter the tools deployed across the issuers, acquirers or consumers, multifactor authentication (and risk scoring) will continue to be an important part of the payments ecosystem and do much to ensure confidence in secure transactions.
The transparency and user-friendly nature of apps also mean retailers and merchants will have to shift the ways in which they design and present loyalty programs.
Loyalty programs, he said, should ideally be part of the point-of-sale (POS) experience, whether a transaction takes place at a brick-and-mortar or digital location. Consumers should have the option to choose how they want their discounts, he said — whether in points or through other means.
“Maybe that’s a reward, a free ticket to a sporting event, or a discount on some goods and services during a future purchase,” said Cole. “Being able to see that, and knowing what’s happening at that point of sale experience, is important and is going to become more important in how consumers vote with, quote-unquote, their wallet and which payment instruments they choose.”